April - Benefits and Pensions Monitor

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How far should a government go to protect private Defined Benefit pension plans? That issue is at the forefront in Ontario, the lone jurisdiction in Canada with a pension benefit guarantee scheme. With the potential collapse of any or all of the major U.S. automakers, the question is ‘what happens to their retirees if their pension plans cease to exist?’ Outstanding Obligations One solution is pension benefit guarantee schemes. According to the January 2007 OECD paper, ‘Benefit Security Pension Fund Guarantee Schemes,’ these are insurance type arrangements with premiums paid by pension funds and cover obligations which cannot be met by insolvent plan sponsors. In addition to Ontario, they exist in a handful of other countries – the U.S., Sweden, Germany, Switzerland, Japan, and the UK – with various degrees of success. Suitable Independence This is very much in keeping with the thoughts from the OECD paper that to work effectively, these schemes must have suitable independence and powers to set and collect appropriately risk-adjusted premiums. However, for guarantee schemes to work effectively, “subsidies should not be provided, either implicitly or explicitly, by governments.” And that is the issue now facing Ontario. Critics of the current situation fear that the recommendations from the budget and comments from Premier Dalton McGinty that there is not “an endless supply of money” for pension bailouts mean the government intends to limit payments to retirees of pension funds which are victims of bankruptcies. Canadian Auto Workers president Ken Lewenza, for example, blames the government for the GM situation as it passed legislation in 1992 which allowed GM to underfund its own plans. However, remember, that in 1992 Ontario was in the midst of its failed experiment with social democracy, the Bob Rae NDP government. We are still dealing with the ramifications of its labour-first policies. Can Promises Be Guaranteed? Ontario’s fund, established in 1980, is about to undergo scrutiny for the first time. One of the recommendations of the Ontario Expert Commission on Pensions calls for the Pension Benefit Guarantee Fund (PBGF) to continue for at least five years or until completion of a study of possible alternatives. It also says the fund should be administered by an arm’s-length agency with enhanced capacities to identify and manage risk, to fix levies, and to collect and invest them. Ontario’s 2009 budget echoes this in some way with a call for a review of the stability and financial status of the PBGF through an independent actuarial study. Then, and only then, will the government consider establishing an independent PBGF agency. However, it also intends that the PBGF operate on sound principles with coverage levels and assessments that are sustainable for the long term. True, in promising to reform the PBGF, the current Ontario government is saying while it could make loans to a new PBGF, it would not be obligated to do so. And the reality is that even the OECD questions whether any guarantee scheme could survive the impact of a major default such as a GM. World Of DB The problem is that in the world of DB, we misinterpret pension promise to mean pension guarantee. But, as we’ve said before and will say again, the only guarantee in life is that we are all going to die someday. Companies and their pension plans fail and we shouldn’t expect taxes from the 60-some per cent of workers who have no pension plan to prop up those who have the misfortune of being victims of life’s circumstances. n jhornyak@powershift.ca EDITORIAL By Joe Hornyak Executive Editor A POWERSHIFT PUBLICATION VOLUME 19, NUMBER 2 APRIL 2009 EDITORIAL DIRECTOR & PUBLISHER John L. McLaine Executive EDITOR Joseph Hornyak Staff Writer George Di Falco ART Keith Boa PRODUCTION Geoffrey Dufton administration D. Brian McKerchar CIRCULATION Cathy McKerchar Fax: 416-494-2536 eMail: cathy@powershift.ca Editorial Advisory Board members meet informally and are consulted when appropriate to their areas of expertise, interest or jurisdiction. The members bear no responsibility for the contents of the magazine. EDITORIAL ADVISORY BOARD Randy Bauslaugh Blake, Cassels & Graydon LLP Wendy Brodkin T. Rowe Price Sylvie Charest Manulife Bruce Curwood Russell Investments Rudy Dabideen CIBC Wood Gundy Mike Gillis Greystone Marilyn Lurz Lynmar Associates Karen Matsubayashi Consultant Mary McLaughlin George Weston Karen Millard Towers Perrin Mark Newton Heenan Blaikie Graeme Ozburn RBC Dexia Ted Patterson Humber Centre for Employee Benefits Stuart Plummer CIBC Mellon John Poos Nortel Networks Robert Weston Omers Vice-president Administration & Circulation Cathy McKerchar ADVERTISING SALES John L. McLaine Frank Torelli Andy Feldman (416) 494-1066 Fax: (416) 494-2536 For all subscription inquiries, fax to Cathy McKerchar at 416-494-2536 e-mail: cathy@powershift.ca Benefits and Pensions Monitor – April 2009 5
Page 1 and 2: Volume 19, Number 2 A Publication o
Page 3: BENEFITS AND PENSIONS MONITOR is pu
Page 7 and 8: Naish Walter Marchese Barrie Weston
Page 9: Mental Illness Challenge Under-addr
Page 12 and 13: “Employers who consider using Bes
Page 14 and 15: Service first - from coast to coast
Page 16 and 17: Fortis Investments Investors want p
Page 18 and 19: www.inalco.com YOU WON’T FIND US
Page 20 and 21: CANADIAN PENSION & BENEFITS INSTITU
Page 22 and 23: Across Canada This TeAm means educA
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Page 28 and 29: A singular focus on fixed income. Y
Page 30 and 31: THIRD PARTY PENSION PLAN ADMINISTRA
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